marketable assets. In July 2008, the government in Wellington reluctantly took the sadly eviscerated and still unprofitable transport operations back into public control—at far greater expense than would have been needed to invest in them properly in the first place.
There are winners as well as losers in the privatization story. In Sweden, following a banking crisis that left the state severely short of revenue, the (conservative) government of the early ’90s re-allocated 14% of the country’s hitherto state-monopolized pension contributions from the public system to private retirement accounts. Predictably, the chief beneficiary of this shift was the country’s insurance companies. In the same way, the terms under which British utilities were sold to the highest bidder included the ‘pre-pensioning’ of tens of thousands of workers. The workers lost their jobs, the state was saddled with an un-funded pension burden—but the shareholders of the new private utility companies were relieved of all responsibility.
Shifting the ownership onto businessmen allows the state to relinquish moral obligations. This was quite deliberate: in the UK between 1979 and 1996 (i.e., in the Thatcher and Major years) the private sector share of personal services contracted out by government rose from 11% to 34%, with the sharpest increase in residential care for the elderly, children and the mentally ill. Newly privatized homes and care centers naturally reduced the quality of service to the minimum in order to increase profits and dividends. In this way, the welfare state was stealthily unwound to the advantage of a handful of entrepreneurs and shareholders.
‘Contracting out’ brings us to the third and perhaps most telling case against privatization. Many of the goods and services that states seek to divest have been badly run: incompetently managed, underinvested, etc. Nevertheless, however poorly run, postal services, railway networks, retirement homes, prisons, and other provisions targeted for privatization cannot be left entirely to the vagaries of the market. They are, in the overwhelming majority of cases, inherently the sort of activity that someone has to regulate—that is why they ended up in public hands in the first place.
This semiprivate, semipublic disposition of essentially collective responsibilities returns us to a very old story indeed. If your tax returns are audited in the US today, this is because the government has decided to investigate you; but the investigation itself will very likely be conducted by a private company. The latter has contracted to perform the service on the state’s behalf, in much the same way that private agents have contracted with Washington to provide security, transportation, and technical know-how (at a profit) in Iraq and Afghanistan.
Governments, in short, now increasingly farm out their responsibilities to private firms that offer to administer them better than the state and at a savings. In the 18th century this was called tax farming. Early modern governments often lacked the means to collect taxes and thus invited bids from private individuals to undertake the task. The highest bidder would get the job, and was free—once he had paid the agreed sum—to collect whatever he could and retain the proceeds. The government took a discount on its anticipated tax revenue, in return for cash up front.
After the fall of the monarchy in France, it was widely conceded that tax farming is absurdly inefficient. In the first place, it discredits the state, represented in the popular mind by a grasping private profiteer. Secondly, it generates considerably less revenue than a well-administered system of government collection, if only because of the profit margin accruing to the private collector. And thirdly, you get disgruntled taxpayers.
In the US and the UK today, we have a discredited state and a glut of grasping private profiteers. Interestingly, we do not (yet) have disgruntled
There are winners as well as losers in the privatization story. In Sweden, following a banking crisis that left the state severely short of revenue, the (conservative) government of the early ’90s re-allocated 14% of the country’s hitherto state-monopolized pension contributions from the public system to private retirement accounts. Predictably, the chief beneficiary of this shift was the country’s insurance companies. In the same way, the terms under which British utilities were sold to the highest bidder included the ‘pre-pensioning’ of tens of thousands of workers. The workers lost their jobs, the state was saddled with an un-funded pension burden—but the shareholders of the new private utility companies were relieved of all responsibility.
Shifting the ownership onto businessmen allows the state to relinquish moral obligations. This was quite deliberate: in the UK between 1979 and 1996 (i.e., in the Thatcher and Major years) the private sector share of personal services contracted out by government rose from 11% to 34%, with the sharpest increase in residential care for the elderly, children and the mentally ill. Newly privatized homes and care centers naturally reduced the quality of service to the minimum in order to increase profits and dividends. In this way, the welfare state was stealthily unwound to the advantage of a handful of entrepreneurs and shareholders.
‘Contracting out’ brings us to the third and perhaps most telling case against privatization. Many of the goods and services that states seek to divest have been badly run: incompetently managed, underinvested, etc. Nevertheless, however poorly run, postal services, railway networks, retirement homes, prisons, and other provisions targeted for privatization cannot be left entirely to the vagaries of the market. They are, in the overwhelming majority of cases, inherently the sort of activity that someone has to regulate—that is why they ended up in public hands in the first place.
This semiprivate, semipublic disposition of essentially collective responsibilities returns us to a very old story indeed. If your tax returns are audited in the US today, this is because the government has decided to investigate you; but the investigation itself will very likely be conducted by a private company. The latter has contracted to perform the service on the state’s behalf, in much the same way that private agents have contracted with Washington to provide security, transportation, and technical know-how (at a profit) in Iraq and Afghanistan.
Governments, in short, now increasingly farm out their responsibilities to private firms that offer to administer them better than the state and at a savings. In the 18th century this was called tax farming. Early modern governments often lacked the means to collect taxes and thus invited bids from private individuals to undertake the task. The highest bidder would get the job, and was free—once he had paid the agreed sum—to collect whatever he could and retain the proceeds. The government took a discount on its anticipated tax revenue, in return for cash up front.
After the fall of the monarchy in France, it was widely conceded that tax farming is absurdly inefficient. In the first place, it discredits the state, represented in the popular mind by a grasping private profiteer. Secondly, it generates considerably less revenue than a well-administered system of government collection, if only because of the profit margin accruing to the private collector. And thirdly, you get disgruntled taxpayers.
In the US and the UK today, we have a discredited state and a glut of grasping private profiteers. Interestingly, we do not (yet) have disgruntled
Similar Books
